Phones 4u, the private equity-owned retailer, has suffered a 25% collapse in earnings this year after the growing number of smartphones sent the cost of claims soaring at its traditionally lucrative insurance business.

Credit rating agency Standard & Poor's has raised concerns about Phones4u's debt profile, saying the firm would slip into its "highly leveraged" category if earnings fell further. S&P revised its outlook from stable to negative, after higher insurance claims and the delayed launch of Apple's new iPhone forced earnings before financial charges down by a quarter to £74.1m in the nine months to 30 September compared to the same period last year.

Phones 4u, which changed hands in a £700m secondary buyout in March when Providence Equity Partners sold out to fellow private equity firm BC Partners, is now expected to earn £120m for the year, down from the £140m forecast by S&P.

BC Partners and management, which holds a 7% stake, raised £555m in net debt to fund the new buyout, in a deal that resulted in founder John Caudwell finally leaving the business.

Turnover is likely to rise, from £911m in 2010 to £940m, but the cost of replacing smartphones, added to competition from other insurers, has been denting profits at Phones 4u's insurance division, which has in the past accounted for more than half of the company's earnings. Last year, the division's margins fell from 46% to 31% of sales. Earnings fell from £65m to £56m despite a rise in turnover to £179m.

The lack of a new iPhone during the summer brought further pressure because the device accounts for up to a quarter of sales at Phones 4u.

This year's iPhone 4S did not arrive in the shops until mid-October, while its predecessor, the iPhone 4, was launched in July 2010, making for tough year-on-year comparisons.

Turnover was up 11% compared with the first nine months of 2010, thanks to new store openings. S&P said: "For 2012, we expect the operating environment to remain difficult, with moderate revenue growth."

S&P said it would lower Phones4u's current B+ rating if the company's margins deteriorated to the point where earnings were less than £110m, and less than five times its debt. The B rating is defined by S&P as: "More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments."

Phones4u has launched 35 new shops in the last quarter, and chief executive Tim Whiting said: "We are one of the few people on the high street opening more stores. The environment is tough but we are fortunate to be taking market share and in a category that the consumer is demanding very highly."

With the new iPhone and Nokia's lavishly marketed Lumia 800 both launched in the final quarter, Phones4u is hoping to recover lost ground in pre-Christmas sales. Whiting forecast full-year earnings of between £120m to £130m, guiding towards the bottom of the range. This compares to £130m last year.

Caudwell made his fortune selling an 88% stake to Providence for £1.24bn in 2006, and is thought to have collected a further £175m from his remaining stake when BC Partners took over.